In the new issue of Regulation, economist Pierre Lemieux argues that the recent oil price decline is at least partly the result of increased supply from the extraction of shale oil. The increased supply allows the economy to produce more goods, which benefits some people, if not all of them. Thus, contrary to some commentary in the press, cheaper oil prices cannot harm the economy as a whole.

Two long wars, chronic deficits, the financial crisis, the costly drug war, the growth of executive power under Presidents Bush and Obama, and the revelations about NSA abuses, have given rise to a growing libertarian movement in our country – with a greater focus on individual liberty and less government power. David Boaz’s newly released The Libertarian Mind is a comprehensive guide to the history, philosophy, and growth of the libertarian movement, with incisive analyses of today’s most pressing issues and policies.

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Topic: Social Security

For years, opponents of Social Security reform have told us that there is no need to rush into changing the program because, after all, Social Security is running a surplus today. Well, according to a new report by the Congressional Budget Office, not so much.

CBO reports that the Social Security surplus, originally expected to be $80-90 billion this year and next will shrink to $16 billion this year and just $3 billion next year (essentially a rounding error) as a result of the recession and rising unemployment. And those estimates may be far too optimistic. In February of this year, for example, Social Security actually ran a deficit—spending more than it took in through taxes and interest combined.

And, while CBO expects a return to modest surpluses after 2010, as the recession ends and unemployment falls, that is betting on the success of the unproven Obama economic program. If unemployment stays at current levels, Social Security will begin running permanent cash flow deficits in 2011 (eight years earlier than previously predicted).

Opponents of personal accounts have pointed out recent declines in the stock market as a reason why private investment should no longer be considered an option for Social Security reform. The evidence suggests that, even with recent market declines, private investment would still produce higher returns than Social Security. The new surplus numbers provide yet another lesson: if the economy is in such a mess that it hurts private investment, traditional Social Security isn’t going to be in any better shape.

I haven’t seen any media attention paid to it yet, and I don’t recall the president mentioning it in his speech Tuesday night. Regardless, p.37 of today’s budget blueprint calls for “Making Saving for Retirement Easier as the Economy Recovers.” Although it sounds innocuous, I believe the contents could be cause for alarm:

“Over the long-term families need personal savings, in addition to Social Security, to prepare for retirement and to fall back on during tough economic times like these. However, 75 million working Americans—roughly half the workforce—currently lack access to employer-based retirement plans. In addition, the existing incentives to save for retirement are weak or non-existent for the majority of middle and low-income households. The President’s 2010 Budget lays the groundwork for the future establishment of a system of automatic workplace pensions, on top of and clearly outside Social Security, that is expected to dramatically increase both the number of Americans who save for retirement and the overall amount of personal savings for individuals. research has shown that the key to saving is to make it automatic and simple. Under this proposal, employees will be automatically enrolled in workplace pension plans—and will be allowed to opt out if they choose. Employers who do not currently offer a retirement plan will be required to enroll their employees in a direct-deposit IRA account that is compatible with existing direct-deposit payroll systems. The result will be that workers will be automatically enrolled in some form of savings vehicle when they go to work—making it easy for them to save while also allowing them to opt out if their family or individual circumstances make it particularly difficult or unwise to save. Experts estimate that this program will dramatically increase the savings participation rate for low and middle-income workers to around 80 percent.”

Here are my concerns just off the top of my head:

Obviously, it represents yet another government encroachment upon individual liberty. While employees would be “allowed” to opt out, employers would not. More ominously, while there is no mention of government subsidization of individual plans or forced contributions by employers, how long will it take for activists and their congressional allies to go down those roads? I can already envision hordes of politicians bemoaning the inability of low- and moderate-income workers to direct any portion of their wages toward their accounts. And don’t just think this will be limited to leftist politicians. When I worked for the U.S. Senate a conservative senator once asked me to design a mandatory savings plan for all citizens in which the government and employers would “contribute.”

I guess the bright side here is that the administration is implicitly acknowledging that Social Security isn’t the wonderful retirement nest egg defenders have wanted us to believe. I also can’t help but chuckle at the political reintroduction of savings as being beneficial. Over the past year we’ve been repeatedly warned that savings is bad and spending is good. Anyhow, this issue is going to be one to watch going forward.

But facts are stubborn things. The combined unfunded liabilities of Social Security and Medicare top $100 trillion. Indeed, without reform, Social Security will begin running a deficit within eight years, by 2017. And Medicare faces a deficit even sooner. If current trends continue, Medicare and social Security, along with Medicaid, will consume 28 percent of GDP by mid-century.

Obama has the opportunity to show that he truly represents a change from Washington politics as usual. If he retreats from obvious challenges so easily, he will fail.

The AP reports that you and I will be paying the cost of rearing Nadya Suleman’s newborn octuplets – as well as her other six children – through various state and federal welfare programs:

Even before the 33-year-old single, unemployed mother gave birth to octuplets last month, she had been caring for her six other children with the help of $490 a month in food stamps, plus Social Security disability payments for three of the youngsters. The public aid will almost certainly be increased with the new additions to her family.

Also, the hospital where the octuplets are expected to spend seven to 12 weeks has requested reimbursement from Medi-Cal, the state’s Medicaid program, for care of the premature babies, according to the Los Angeles Times…

In California, a low-income family can receive Social Security payments of up to $793 a month for each disabled child. Three children would amount to $2,379.

The Suleman octuplets’ medical costs have not been disclosed, but in 2006, the average cost for a premature baby’s hospital stay in California was $164,273, according to the U.S. Department of Health and Human Services. Eight times that is more than $1.3 million, and the average cost for just one cesarean birth in 2006 was $22,762 in California.

A reasonable person might ask, “So what? Poor kids need help. Would you rather let them die?” That certainly does not seem to be the answer. Yet there are perils inherent in having government come to the rescue.

One challenge confronting both public and private charity is known as the Samaritan’s dilemma: any effort to help the needy inevitably discourages self-help. People at the margins don’t work as hard, or even take deliberate advantage of others’ altruism, which increases the number of people “in need.” That appears to have happened in Suleman’s case:

Word of the public assistance has stoked the furor over Suleman’s decision to have so many children by having embryos implanted in her womb…

Suleman received disability payments for an on-the-job back injury during a riot at a state mental hospital, collecting more than $165,000 over nearly a decade before the benefits were discontinued last year.

Some of the disability money was spent on in vitro fertilizations, which was used for all 14 of her children, Suleman said. She said she also worked double shifts at the mental hospital and saved up for the treatments. She estimated that all her treatments cost $100,000.

The First Peril of Public Charity is that government does a relatively poor job of discouraging such opportunistic behavior. Food stamps, Social Security disability payments, and Medicaid benefits are entitlement programs. So long as Suleman meets the statutory eligibility criteria, she is legally entitled to benefits no matter how much she may be milking the system. It is extremely difficult to tailor government eligibility rules (whether statutory or regulatory) to prevent all the possible forms of abuse. And even if some government bureaucrat tries to cut off welfare recipients who are abusing the system, those recipients can sue the government and there are legions of lawyers who will help. Private charity is much better at discouraging opportunistic behavior by tailoring assistance to the truly needy. Did Suleman and her children truly need all the public assistance they had been receiving? Would she have been able to afford in-vitro fertilization had she not been on public assistance? If the availability of additional charity were less certain, would she have tried to get pregnant again? Maybe, but probably not.

Suleman’s case has led taxpayers to recommend some startling policy responses:

On the Internet, bloggers rained insults on Suleman, calling her an “idiot,” criticizing her decision to have more children when she couldn’t afford the ones she had, and suggesting she be sterilized.

“It’s my opinion that a woman’s right to reproduce should be limited to a number which the parents can pay for,” Charles Murray [not the American Enterprise Institute scholar] wrote in a letter to the Los Angeles Daily News. “Why should my wife and I, as taxpayers, pay child support for 14 Suleman kids?”…

“From the outside you can tell that this woman was playing the system,” host Bryan Suits said on the “Kennedy and Suits” show on KFI-AM. “You’re damn right the state should step in and seize the kids and adopt them out.”

Emphasis added.

Those responses are a predictable consequence of government charity. They reflect the same selfish rationale that the Church of Universal Coverage uses to argue for eliminating your right to choose health insurance.

If somebody is abusing generosity, the appropriate response is not to take away their rights but to take away the generosity. (Some curtailment of parental rights can be justified if the children are in danger. But we don’t yet know if Suleman is going to get a reality-TV deal out of this.) Private charity can do that. Government is ill-equipped to do so, and so our rights come under attack.

The irony is that the Left’s adamant support for government charity is eroding smokers’ rights, property rights, dietary rights, medical rights, and now even the Left’s cherished reproductive rights – making the Left less and less liberal by the day.

Barack Obama says he will make entitlement reform a central part of his attempt to control government spending. Just how serious is President Obama about entitlement reform? Are private accounts for Social Security on the table? In today’s Cato Daily Podcast, senior fellow Michael D. Tanner weighs in on Obama’s plan for the future of entitlement programs.

“The fact is, of course, private investment would still be a better deal than Social Security, but you have to face the fact that people are scared of the market right now,” Tanner says. “But I think you’ve got to give Barack Obama points for political courage. In addressing the need for entitlement reform he is taking on one of the mainstays of his party.”

One has to give Barack Obama at least half a point for political courage. In warning that Social Security and Medicare are ticking fiscal time bombs, the president-elect took on one of his party’s most prized shibboleths–the idea that there is nothing wrong with those programs that repealing the Bush tax cuts wont fix. After all, hardly any Democrat anywhere campaigns without attacking his Republican opponent for wanting to destroy Social Security and Medicare.

But to get full courage points, Obama would have to come up with an actual plan to reform the two troubled programs. So far, he hasn’t. The Social Security plan he put forward during the campaign, a 4% payroll tax hike on those earning more than $250,000 per year, would give the United States one of the highest marginal tax rates in the world, with devastating economic consequences, but would do almost nothing to extend Social Security’s cash-flow solvency.

In the end, there are only three ways to fix Social Security: raise taxes, cut benefits, or allow private investment. Moreover, as Cato has long pointed out, solvency is only one of the problems facing Social Security. Social Security taxes are already so high, relative to benefits, that Social Security has quite simply become a bad deal for younger workers, providing a low, below-market rate of return. In fact, many young workers will end up paying more in taxes than they receive in benefits. They will actually lose money under the program. And the single most important problem with the current Social Security system remains that workers have no ownership of their benefits. This means that workers are left totally dependent on the good will of 535 politicians to determine what they will receive in retirement. This lack of property rights also translates to poorer bequests. Since workers do not own the money they pay in Social Security taxes, they are unable to pass their inherited retirement savings on to their heirs. No matter how much a worker has paid in Social Security taxes, his benefits are reduced at death and then expire with the spouse.

Having bucked his party on whether Social Security needs to be reformed, will Obama have the courage to go further and allow younger workers the option of privately investing a portion of their Social Security taxes through personal accounts?

On Medicare, the president-elect has been equally lacking in specifics. During the campaign, he actually called for expanding Medicare, notably by increasing coverage under the prescription drug program, eliminating the so-called “donut hole.” Now he talks mostly about eliminating the Medicare Advantage program, the program’s private managed-care option. Managed care providers may indeed be overcompensated under that program, but the program’s real long-term problems lie in its open-ended indemnity-style, fee-for-service payments. Obama also suggests that his overall health care reform will reduce the growth in health care spending, thereby reducing Medicare costs. That’s more a prayer than a program.

But speaking of health care reform, it seems somewhat oxymoronic for President-Elect Obama to warn about the dangers of entitlement spending while calling for a massive new entitlement in the form of national health care.

Obama has shown the first signs of political courage. But the devil is in the details. Let’s see what he actually proposes. Only then will we know if his courage is more than rhetoric deep.

As Barack Obama prepares to take office, a few crucial administration positions remain unfilled. Herewith a modest proposal for one still open position: Bernard Madoff for Social Security Commissioner.

True, there may be a minor problem since Madoff is under indictment for running a $50 billion “Ponzi scheme” on Wall Street, but think of the qualifications. Madoff is accused of running a scheme in which he took money from people with a promise to invest it. But instead of making investments, he kept the money for himself, and simply took more money from later investors and used it to pay earlier investors. Now compare that to a Social Security system that takes money from workers but does not save or invest it. Instead the government simply uses money from younger taxpayers to pay benefits to earlier retirees, while spending any “surplus” on other things. In the end, neither Madoff’s scheme nor Social Security are sustainable.

The big difference is that Madoff will likely go to jail; the politicians in Washington will likely get reelected.